MCO creates a sudden pressure on the sellers and brings an opportunity to the buyers to buy good value assets at a reduced price

by SHAHEERA AZNAM SHAH / graphic by MZUKRI MOHAMAD

MORE consolidation of companies and assets are on the horizon as the low cycle in the economy could benefit cash-rich companies and investors to acquire more strategic assets while cash trapped companies/investors exit.

Rakuten Trade Sdn Bhd head of equity sales Vincent Lau said the economic pressure brought by the Covid-19 pandemic and ensuing Movement Control Orders (MCO) have hit cashflows and pushed many to consider merger or acquisition talks that could have been initiated earlier.

“The MCO has created a sudden pressure on the sellers and brought an opportunity to the buyers to buy good value assets at a reduced price. Both buyers and sellers are willing to talk and negotiate in this condition.

“We are expecting more of this, especially those who have the balance sheet, it is an opportune time for them to look at assets of certain companies and for those companies to sell their non-performing or underperforming assets,” Lau told The Malaysian Reserve (TMR).

While small businessmen, businesswomen and SMEs are seeking some form of financial assistance from the government during the current MCO, corporate Malaysia remains vibrant, seeing several major merger and acquisitions (M&As) announcements including Seaport Terminal (Johore) Sdn Bhd’s privatisation offer for MMC Corp Bhd through a selective capital reduction exercise for RM2.94 billion or RM2 a share.

Hibiscus Petroleum Bhd announced its acquisition of Repsol Exploración SA’s upstream assets in Malaysia and Vietnam for some RM880 million in cash.

On Wednesday, Kuala Lumpur Kepong Bhd (KLK) announced its offer to acquire a controlling 56.20% stake in IJM Plantations Bhd from IJM Corp Bhd for RM1.53 billion or RM3.10 a share.

The private equity firm, Creador, announced it will buy 30% in Loob Holdings Sdn Bhd for an undisclosed sum.

While the MCO does play a role in initiating the deal, Inter-Pacific Securities Sdn Bhd head of research Victor Wan believes the recent deals do not signify a “pattern”.

“I do not see that there is a specific time for an M&A as it is very much due to the fact of what has prevailed for the company.

“Thus, I do not see the recent deals represent a “pattern” per se unless they are all within the same industry while looking at the existing deals, they are not. While the MCO does contribute, it is not the determining factor,” he said.

He added during the economic downturn, it is not uncommon for companies and major investors to review their portfolios and realign their businesses according to their financial goals.

“It is common for companies to relook their portfolios and review their direction and objectives. For example, for IJM Corp, it is probably an opportune time for them to cash out their plantation business so they could focus on their infrastructure,” he said.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng said companies flushed with cash will tend to take advantage of the economic downturn to strengthen their position when the economy recovers.

“I would think many investors and corporate patriarchs have different views on the market and its outlook as some companies are facing problems during this crisis and some are flushed with cash.

“I think the market eventually will recover and with that, it is a wise move to deploy cash to potential assets for future returns barring calculated risks,” he said.